Dutch pension funds’ assets of €1trn were the Holy Grail for politicians and companies to plug banks’ funding gap of €478bn last year. By taking over a substantial amount of mortgage loans, pension funds could free up banks’ lending capacity and kick-start the ailing housing market and local economy.

However, despite a government-initiated report concluding that there was support among institutional investors for financing residential mortgages through state-guaranteed bonds, pension funds have been reluctant. In their opinion, they should focus on stable and sustainable returns for their participants.

Their doubts were reinforced by an IMF assessment warning that pension funds must manage their assets independently, and shouldn’t be faced with any additional incentives to alter their asset allocation processes.

More than a year later, things have changed significantly. With the support of the largest pension funds ABP, PFZW and PMT – representing €475bn of assets – and their providers and the Ministry for Economic Affairs, a National Mortgage Institute (NHI) has been set up to issue state-guaranteed, high-grade mortgage bonds. APG, the €334bn asset manager for ABP, was quite enthusiastic about the prospect of a new “sub asset class” of AA+ mortgage bonds, saying it presented a possibility to diversify away from government bonds and credit. Its spokesman even suggested mortgage bonds could draw an allocation of more than €10bn from APG.

According to Peter Borgdorff, director of the €134bn healthcare scheme PFZW, his pension fund is to participate in the NHI with “slightly forced enthusiasm”.

Others have been more cautious. Toine van der Stee, director of Blue Sky Group, the €17bn asset manager for the KLM pension funds, said: “If we can make an interesting local investment we will, also through the NHI. But we won’t change our carefully designed investment policy because politics deems it necessary. We can’t accept lower returns for the good of the nation.”

Inge van den Doel, CIO at the €48bn metal scheme PMT, said her scheme was looking at all options available for investing in Dutch mortgages, as well as direct loans to European companies, including Dutch ones. Last July, PMT announced a €350m extra investment in Dutch rental property – increasing the allocation by 30%. Recently, Van den Doel said she believed initiatives generated by the market itself would have the best chance of success.

Van der Stee suggested the NHI could still contain a “hidden and unpaid bill” and cited the still unclear governance arrangements of the mortgages scheme. “Who is to govern the NHI, who is to monitor the risks of the illiquid investments, and what would be the investors’ say?” he asked.

He made clear he was nevertheless interested in increasing Blue Sky’s current allocation of approximately 3% in Dutch property, as well as investing in public infrastructure, “as this is the best way to keep up with inflation in the Netherlands”.

The fact the largest pension funds in the Netherlands are participating in the NHI could tempt others to follow suit. But, in the opinion of all pension funds, actual investment in NHI-issued mortgage bonds or NII projects will depend first and foremost on the risk/return ratio offered by concrete proposals.

In addition, many schemes have argued that a consistent government policy for the long term is equally important. They haven’t forgotten that the Treasury decided to discontinue a pilot scheme for road reconstruction, financed by APG under inflation-linked arrangements.

Last but not least, another important hurdle needs to be cleared – the approval of the European Commission.